The True Costs of the Public Service: Big Government and Even Bigger Debts in Greece

May 11, 2010

                 It seems that with the IMF (International Monetary Fund) and Euro-zone leaders coming to an agreement on the bailout package, for financially troubled Greece, that perhaps the economic woes that plague Europe may finally be coming under control.  The Associated Press is reporting that the package worth approximately $100 billion (US) will be capable of providing Greece with a 2 year reprieve, with $25.7 billion of the funds becoming immediately accessible with a total of an estimated $51.5 billion in loans to be made available this year.

                The release of the funds is not however without strings attached.  Part and parcel to the agreement is that Greece enact record-setting austerity measures in order to control their government deficit and debt.  The Austerity measures are truly unprecedented with the New York Times Reporting that the budgetary cuts amount to $38 billion over the next two years.  The cuts are coming via a roll back on public sector wages and tighter retirement ages, while an increase in taxes is expected to grant some breathing room to government operating budgets.

                These cuts are already having a wide ranging social and economic impact in Greece.  As the whole-sale rioting across the country in recent days has been sure to demonstrate, the people of Greece are not happy with the solution that has been enacted to solve the crisis, and in some sense perhaps rightly so.  However it was the Greek populace who chose their own leadership, who then in turn dug this hole.  Though the Greek people may be left holding the bag in this case they must admit to some responsibility for the situation.

Greece has fallen into the uniquely undesirable economic situation of having one of the largest public sectors in the first world.  Best estimates as to the actual size of the public sector in Greece vary; with numbers ranging from 30-40% of GDP (Gross Domestic Product) it is hard to pin an accurate number down.  Even if we take the IMF’s more conservative projection of 30% that still leaves the Greek government accounting for a huge proportion of the country’s output. In real world numbers Yahoo! News is reporting that the public sector accounts for as much as 1/3 of all employable workers.  From an estimated total workforce of 5 million that’s a staggering 1.7 million workers!  In comparison with other first world nations this number is exceptionally high.  Canada’s public sector only accounts for 20% of the workforce, while leading economies like the U.S., Germany, and Japan have public sectors that operate in the 10% range.

The reason for the Greek populace’s downright aggression over the austerity measures should be readily clear.  Thanks to a ballooning public sector the Greek government is now the key economic driver in the country.  Unfortunately unlike a private sector corporation, that is forced to live within its means or perish, public sector entities like governments have gotten away with years of deficit spending practices amidst continual growth and expansion thanks to the guaranteed market that is the taxpayer. 

Let’s put all of this into perspective. Greece who’s sovereign debt has grown significantly in the past two years, with the debt steadily growing from 63.8% of GDP in 2008 to 72.3% in 2009, has been unable to control public sector spending.  However don’t let these percentage indicators deceive you.  It’s necessary that we keep in mind that the Greek GDP for 2009 was $341 billion making the government debt $246.5 billion for last year alone.  To make matters all the worse for Greece is the fact that the government operating budget was measured at only $108.7 billion in revenues while they carried $145.2 billion in expenditures for 2009; a deficit of $36.5 billion.

Given that the Greek government has committed to an average of $19 billion in spending cuts over the next two years that should place them back onto the plus side of the books and bring an end to deficit spending.  However meeting such targets may provide a very real problem for the Greek people.  The necessary cuts to the public services will result in jobs lost; jobs for which there are no immediate private sector replacement anywhere on the horizon.  A reduction in the Greek public sector to even Canada like levels, moving from 30% to 20%, may not be a realistic target to meet within the next two years.  Greece already has an unemployment level of 9% which is sure to see a drastic increase from any attempts to reduce the size of government.  However as the IMF and E.U. have made clear such attempts will have to be made. 

                The question on everybody’s minds is can the Greek people succeed at, what is admittedly, such a complex and delicate task?  The people of Greece are in a tough predicament and with the globalization of today’s markets there is little for the world to do but attempt to prop them up.  That being said, ultimately, it will be up to the people of Greece who will set the course for their futures.  The answer will reveal itself in the coming months. Until then the world has reluctantly decided to pitch in and provide Greece with a short-term bailout, but it will all amount to nothing if the Greek government cannot bring its house in order.

Your host, the Fro with the Know:

Tim

*note on the edit* Decided to add my sourcing on the numbers for this article as I did so in my follow-up. 

GDP numbers unless otherwise quoted are all courtesy of the CIA World Factbook which may be found online here: https://www.cia.gov/library/publications/the-world-factbook/

The numbers in the case of the public services in each country come from their respective statistics/census bureau

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4 Responses to “The True Costs of the Public Service: Big Government and Even Bigger Debts in Greece”

  1. Jen Ganshorn said

    well said….

  2. Jen Ganshorn said

    Congrats

    • Tim said

      Thanks much: it means a lot to get a liltte bit of support; espicially at the start! Thanks for dropping buy Auntie jen!

  3. Nyakio said

    Nyc work, kudos!!!

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